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Evidentiary Arbitrage: The Fabrication of Evidence and the Verifiability of Contract Performance

Contract theory identifies verifiability as a critical determinant of the incompleteness of contracts. Although verifiability refers to the cost of proving relevant facts to a court, very little scholarship connects explicitly the evidentiary process to the drafting of substantive contract terms. This paper begins to explore this relationship to provide a more rigorous explanation of contract design. In particular, the paper concerns the very core of verifiability - truth-finding by a court - and examines the impact of the prospect of evidence fabrication on contracting. It thereby also explores the puzzling tolerance of the adjudicatory system for fabrication and the incentives to fabricate created by thresholds in burdens of proof. The paper suggests that, despite undermining truth-finding, evidence fabrication may be harnessed by contracting parties to improve the (evidentiary) cost-efficiency of performance incentives in their relationship.

Date posted: July 15, 2004

Suggested Citation

Sanchirico, Chris William and Triantis, George G., Evidentiary Arbitrage: The Fabrication of Evidence and the Verifiability of Contract Performance (May 2004). U of Penn, Inst for Law & Econ Research Paper 04-10; Univ. of Virginia Law & Econ Research Paper No. 02-17. Available at SSRN: http://ssrn.com/abstract=353243 or http://dx.doi.org/10.2139/ssrn.353243